Argentina’s banking system awaits the liberalization of the country’s tight banking regulation in 2016 after the election of Mauricio Macri as president.
However, while the removal of some of the key components of the financial system’s regulation will be a positive for bank earnings, the likely deterioration of the macroeconomic environment in the short term – and liberalization in other areas of the financial system – will continue to present stiff operational challenges.
The finance team of the new Macri administration has indicated that reforms to central banking rules that stipulate minimum deposit rates, maximum interest charges and limits to fees will be changed in 2016. Rules concerning mandatory lending to the small and medium-sized enterprise segment are not expected to be included in the first wave of banking liberalization.
There is not expected to be any immediate change to banks’ ratings (as these are constrained by the sovereign, which will remain in default) but the rating agencies have said that reforms will be credit-positive for Argentina’s financial institutions.
“We expect the regulatory framework will be more flexible going forward, with the clear message of intent to soft regulation and this will lead to significant business prospects for banks,” says Maria Valeria Azconegui, banking analyst at Moody’s, although she expects some asset-quality pressures in the short term as debt servicing is pressured by higher inflation and lower disposable incomes due to cuts in public subsidies.
Argentina has low levels of private credit at $66.7 billion, equivalent to 12% of GDP; only 30% of the population have bank accounts. There is, therefore, upside potential through bankerization in the medium term. Such credit growth has been seen in other Latin American countries over the past decade.
However, analysts and participants also say that in the medium term banks will need to adapt their business strategies to meet a radically different economic environment, while consolidation of the sector’s 80-plus banks is expected. At the moment, 65% of the all banks’ funding comes from sight deposits, and much of this is trapped in the financial system due to capital controls. If and when those controls are lifted much of the cash will seek to leave the country.
“That will definitely happen,” Pablo Perez Marexiano, head of corporate and investment banking at ICBC, when asked if he thinks there will be capital flight from sight deposits when capital controls are relaxed.
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